Just before Christmas, the US federal government shut down as legislators failed to come up with a funding plan. Initially, there was little impact, as many government workers and offices had holidays scheduled for Christmas and New Year’s Day. That impact only stands to grow, however. Nonessential employees have officially been furloughed, and about 420,000 are expected to work without pay until the government shutdown ends. Many people believe that there should be little impact, because the government workers put forth little effort and are overpaid. There will however, be some major impacts to the economy and the federal budget as a result of the shutdown. This will be the case whether people find themselves on the side of President Trump or Congressional Democrats on the issue of funding a wall on the Southern border with Mexico.
Lower Employment
Including the 420,000 government employees who will have to work without pay during the government shutdown, it’s estimated that about 800,000 federal workers will receive no paycheck until the government reopens. During previous government shutdowns, Congress has voted to provide back pay to any employees who missed any paychecks. It’s entirely likely that this will be the case during the current shutdown. However, this does not mean that mortgage lenders, banks, and utility companies will let these employees slide while they go without a paycheck. GOP Representative Scott Perry of Pennsylvania expressed shock that any government employee would find themselves in a situation where they might be hurt by missing a single paycheck or two. While clear statistics are not available, it is likely that there will be missed mortgage and utility payments should the shutdown last very long. This could negatively impact the credit rating of government employees and cause them to have higher interest rates when applying for a mortgage or car loan.
Shutdowns can cost the economy billions
While it might seem that having part of the government shut down will save money because of the costs of running a government, this couldn’t be further from the truth. It’s estimated that as taxpayers, we lost about $2 billion in lost productivity as the result of a similar shutdown that lasted 16 days back in 2013. A 2017 estimate from Standard & Poor’s pointed out that a government shutdown could cost taxpayers a cumulative $6.5 billion each week. As the partial closure of the government enters week 4, this would indicate that we’ve already lost $19.5 billion cumulatively. The number goes up by $6.5 billion each additional week that the nonessential government agencies remain shuttered. There are also estimates from the same Standard & Poor’s study that the last shutdown in 2013 dropped economic growth from 3 percent to 2.4 percent in the quarter in which it took place. What are these costs in addition to lost productivity? There are late fees on bills the government fails to pay. There are missed entrance fees to national parks and museums that would otherwise bring in some revenue for the government. Some payments to private parties may not get paid as well, and this means that the government could need to pay higher interest rates on these bills that are due. These are additional tax dollars that taxpayers will have to eventually pay.
Small Business will lose Money
Not all small businesses will be equally affected by a government shutdown. A coffee shop in North Platte, Nebraska, will likely not see the same impact as a similar business located in Washington, DC. In areas with high concentrations of federal government employees, small businesses are likely to see lower traffic in their stores and restaurants. People who have little saved and who have no money coming in from a paycheck will likely cut down their spending. This means less revenue for many small businesses. Additionally, small businesses in close proximity to national parks will likely see fewer customers as people decide not to visit while the parks are closed. During the last shutdown, the Small Business Administration stopped processing small business loans. During that shutdown in 2013, small business loan approval rates fell at both large and small banks. If a similar trend holds, this could mean that startups will have trouble accessing the funds that they need to start or expand operations.
What about Tax Refunds or Government Benefits?
President Trump confirmed that income tax refunds will go out as scheduled, although this would institute a policy departure by the IRS, which does not usually pay out refunds if government offices are closed. Those of us who might be drawing food stamps can take a sigh of relief as well. The SNAP and WIC programs are funded through February, which means that it would take a very long shutdown before these benefits would be cut. Should the government closure last through February, there could be a negative impact on these programs that help the poorest of Americans. Social Security payments will continue to roll in for those of us who may be retired and drawing benefits.
Other Impacts from the Shutdown
While major agencies that are tied to public safety have remained open, there have been limited disruptions. Employees that are tied to air travel have been working, many of them without pay. Some are starting to call in sick as a result. Agencies affected by the shutdown, even though they are considered essential, are the Transportation Security Administration and air traffic controllers. Miami International Airport has shut down one of its terminals as a result of the shutdown. These impacts could negatively impact the safety of air travelers. Additionally, about 40 percent of workers at the Food and Drug Administration have been furloughed. This means that fewer inspections of food and drugs coming from overseas and produced within the US will take place. This could make it more likely that contaminated food or drugs could enter our supplies. While the shutdown has occurred over a dispute for funding a border wall, the immigration courts that deal with illegal immigration have been shut down. This means that an already massive caseload backlog will only grow as a result of the government shutdown.
While it may seem that a partial government shutdown would have a relatively minimal affect on the well-being of the nation, there are definite impacts that will only grow over time. From government workers missing paychecks to small businesses losing revenue as those workers have no money to spend, there will no doubt be a growing economic impact as the government remains closed. Additionally, major public safety agencies have limitations as many of their employees are either furloughed or have trouble getting to work because of an inability to pay for gas or childcare. The impact of this shutdown should only compound over time. We can only hope as a Nation and one of the largest economies in the world, that our big government and get it together, put their differences aside, and come up with an even compromise.
References:
“Cost of the Government Shutdown? Billions and Rising. It’s Cheaper To Keep the Government Running,” Fortune, 9 January 2019, http://fortune.com/2019/01/09/govt-shutdown-2019-costs-billions/. Accessed 12 January 2019.
“420,000 Government Employees Will Go Without Pay During Government Shutdown,” CBS News, 3 January 2019, https://www.cbsnews.com/news/government-shutdown-2018-employees-work-without-pay/. Accessed 12 January 2019.
“Government Shutdown: How Small Businesses Are Hurt,” USA Today, 23 December 2018, https://www.usatoday.com/story/money/2018/12/23/government-shutdown-3-ways-your-small-business-can-affected/2397871002/. Accessed 12 January 2019.
“How Is The Shutdown Affecting America? Let Us Count The Ways,” NPR,9 January 2019, https://www.npr.org/2019/01/09/683642605/how-is-the-shutdown-affecting-america-let-us-count-the-ways. Accessed 12 January 2019.
